- Record Sales and EBIT: Ninth consecutive quarter of record sales and EBIT.
- Cash Flow from Operating Activities: $1,260 million generated over trailing 12-month period, a historical high for RPM.
- Consolidated Organic Sales Increase: 0.9% growth driven by Construction Products Group and Performance Coatings Group.
- Adjusted EBIT Margin Expansion: 170 basis points improvement.
- Adjusted EPS: Increased 40.5% to $0.52, a third quarter record.
- Interest Expense Decline: Due to $629 million debt reduction over the prior year.
- Construction Products Group: Record third quarter sales led by concrete admixtures.
- Performance Coatings Group: Record sales from demand for engineered solutions and market share gains.
- Specialty Products Group: Sales decline due to challenging comparisons and divestiture of noncore business.
- Consumer Group: Pressured by weaker DIY takeaway and lean retail inventories.
- Working Capital Improvement: Reduced by 580 basis points year-over-year to 21.4% of sales.
- Cash Flow from Operating Activities: Record $173 million during the quarter.
- Debt Reduction: $629 million compared to the prior year.
- Dividends and Share Repurchases: Returned $210 million to shareholders in the first 9 months of the fiscal year.
- Emerging Markets Investment: New plants in Malaysia and India to add capacity and reduce costs.
- Fourth Quarter Sales Outlook: Expected to be approximately flat compared to the prior year.
- Fourth Quarter Adjusted EBIT Outlook: Expected to increase in the high single-digit percentage range.
- Full Year Sales Growth Guidance: Anticipated to be near the midpoint of up low single digits.
- Full Year Adjusted EBIT Growth Guidance: Expected to be near the midpoint of up low double digits to mid-teens.
Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RPM International Inc (RPM, Financial) achieved its ninth consecutive quarter of record sales and EBIT results.
- The company generated $1,260 million in cash flow from operating activities during the trailing 12-month period, a record high.
- Sales growth was led by the Construction Products Group and Performance Coatings Group, benefiting from infrastructure and high-performance building projects.
- Positive momentum with RPM's MAP 2025 operational improvement initiatives continued, contributing to margin expansion.
- Emerging markets led growth for the company, with strong demand for RPM's engineered solutions for infrastructure investments.
Negative Points
- Volume declines in the Consumer and Specialty Products segments continued due to challenging market conditions.
- Consumer segment was negatively impacted by lower DIY takeaway and retail customers managing inventory levels tightly.
- Specialty Products Group sales declined primarily due to challenging comparisons in the disaster restoration business.
- On a consolidated basis, pricing during the quarter was up approximately 1%, indicating a slowdown in the ability to raise prices.
- The Specialty Products Group faced a reduction in adjusted EBIT due to sales and volume declines in the disaster restoration business.
Q & A Highlights
Q: Can you provide your current view on whether the sell-in has reconnected with the takeaway at retail stores in the Consumer segment, and how do you see the outlook there over the next couple of quarters? When should we expect a return to volume growth?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) We expect a continuation in Q4 of what we have seen in Q3 and for most of fiscal '24, with continuing relative strength in Construction Products and Performance Coatings and some challenges in the Consumer segment. We expect a return to volume growth in the Consumer segment as we get into fiscal '25.
Q: Can you discuss the continued strength in the CPG side and split out the benefits between the infrastructure reshoring versus the base growth?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) Momentum is continuing for both our Performance Coatings Group and our Construction Products Group into Q4 and fiscal '25. The Construction Products Group's performance has been strong despite weakness in the core commercial construction products market, with growth picked up in infrastructure and various projects. We're well-positioned to continue to win more than our fair share of these projects.
Q: Can you provide more detail on what's driving the margin performance in the Specialty segment?
A: (Russell L. Gordon - RPM International Inc. - VP & CFO) The Specialty Products Group's performance in the quarter was impacted by the lack of disaster restoration business and unfavorable comparisons to the prior year period. The divestiture of the noncore furniture warranty business also contributed to the sales decline. The reduction in adjusted EBIT was driven by the sales and volume decline in the disaster restoration business and the divestiture of the noncore furniture warranty business.
Q: How should we think about earnings growth for fiscal '25?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) We're not prepared to provide detailed guidance for fiscal '25 at this stage. We will do that when we report fourth quarter results in July. We expect to see a recovery in our Specialty Products Group and a return to positive Consumer takeaway sometime in fiscal '25. We see continued good momentum in the economic and market dynamics for Construction Products and Performance Coatings.
Q: Is RPM interested in PPG's North American architectural paint business?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) We generally don't comment on our acquisition activity until things are done. However, given the public announcement of PPG's divestiture, we have some interest in pieces and parts and intend to be part of any process and take a look at that.
Q: Will there be a MAP 2028 program or a different approach to strategy beyond MAP 2025?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) We're focused on achieving our MAP 2025 targets. There will be a new program, which we will discuss publicly either next spring or next summer. The MAP initiatives have a lot of legs, particularly on the commercial side and the data side, and there will be a new program with details provided roughly a year from now.
Q: Can you talk about the competitive dynamics in your project businesses in Construction and Performance Coatings?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) We've done a good job of maintaining pricing with a few exceptions in more commodity-like products. We're not seeing significant price reductions, and the level of inflation has dropped dramatically. We are seeing a stabilization of raw materials for the most part, with some commodity chemicals that have dropped meaningfully.
Q: What's going on with the margin performance in the Specialty segment and the fourth quarter sales guide?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) The impact of weather-related events last year was very significant in Q3, which won't recur to the same extent this year. The divestiture of the Guardian warranty business also impacted Q3 but won't affect Q4 comparisons. We're starting to see stabilization in the core OEM coatings categories, and we expect Q3 to be the low point of performance for our Specialty Products Group.
Q: How should we think about cash flow and working capital going forward?
A: (Russell L. Gordon - RPM International Inc. - VP & CFO) We're good at some of our businesses, but more than half our businesses have plenty of room to improve in sales and operational planning to only make the stock that's needed by our customers and not much more.
Q: How should we think about potential volume recovery or snapback in the Consumer segment?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) We don't foresee any huge snapback in volume but a steady return to normal Consumer takeaway combined with volume driven by some new product introductions. We will be rounding easier comparisons as we get into fiscal '25.
Q: What do you attribute the solid performance in emerging markets towards?
A: (Frank C. Sullivan - RPM International Inc. - Chairman, President & CEO) Leadership matters everywhere, and we've got really good leaders now in our developing regions. It's taken us a while to really focus on a strategy that is leverageable and sustainable, and we have one. The performance you're seeing here is principally organic, driven by better structure, better leadership, and a better focus.
